TROY, Mich. (April 8, 2002) — Penske Auto Centers L.L.C. is closing the doors on its 563 tire service and automotive repair shops—a byproduct of Kmart Corp.'s Jan. 11 filing for Chapter 11 bankruptcy protection—but Kmart has taken legal action to keep Penske from doing so.
Penske made the announcement April 6 after talks between the two corporations apparently broke down April. 5.
Kmart, Penske's landlord and minority owner, had been in discussions with Penske for several weeks regarding a plan for the auto centers' future that would protect the interests of Penske's customers, Kmart said. Kmart called Penske's decision to close a “precipitous action.”
In the wake of Penske's announcement, a temporary restraining order was issued by the U.S. Bankruptcy Court for the Northern District of Illinois against Penske Auto Centers Inc. and Penske Auto Centers L.L.C. That order requires Penske to continue operating its 563 centers at Kmart stores, according to a Kmart press release.
Signed by Chief Judge Susan Pierson Sonderby, the order enjoins Penske from taking action to close or liquidate the Penske Auto Centers owned and operated by Penske Auto Centers L.L.C., the press release said. This includes any action to refrain from opening or continuing to operate the auto centers for business as usual.
Calls to Penske and Kmart were not immediately returned. Penske's customer service department said all stores are “closed for inventory.” A representative said they haven't been told whether the stores would be re-opening. Calls to individual Penske Auto Centers produced the same response.
In its own press release, Penske said its decision to close stemmed from a March 27 meeting involving Penske Chairman Richard Peters, Penske Director Roger S. Penske, and Kmart COO Julian Day and Chief Restructuring Officer Ronald Hutchinson.
“Julian Day informed us that Kmart had determined through their research that the auto centers provided no value to its core business,” Mr. Peters said in the release. “Kmart was therefore unwilling to provide any support to (Penske) and agreed that the best course of action was to close (Penske).
Mr. Peters said upon reviewing Kmart's initial statements, he felt “obliged for the benefit of our employees and customers to provide background on some of the events surrounding (Penske's) decision to discontinue operations.” He said that since Jan. 11 Penske Corp. has provided $40 million to “support the viability” of Penske Auto Centers.
He further noted that Kmart on April 1 defaulted on a $5 million payment due to Penske as a result of the Kmart store closures announced in March, the press release said. He said that Penske would appear before the court in Chicago on April 8 to protect its interests.
Goodyear, Penske's primary tire supplier, downplayed the significance of the announcement.
“In the context of the large number of tires we manufacture as a corporation, while that's certainly important in terms of the number of tires, it's still a relatively small number,” said a Goodyear spokesman, who added the tire maker would not get into specifics regarding the number of tires the company supplies to Penske. In addition to Goodyear branded tires, the tire maker also provides Penske private label tires to the auto centers.
Tires, wheels and tire-related services represented about 30 percent, or $88 million, of Penske Auto Centers' fiscal 2000 sales of $298 million. Its per store sales of about $475,000 were less than half the average of other major tire dealerships, according to Tire Business research.
Other suppliers likely to be affected by the closing include Genuine Parts Co., Snap-on Tools Inc. and Tenneco Automotive Inc., among others, according to the research arm of global investment bankers Lehman Brothers Inc.
In a separate press release, Penske Auto Centers President Jim Wheat said that, where possible, Penske Corp. would try to “provide our employees with opportunities for positions within the Penske family of companies.” Penske Auto Centers has approximately 4,000 employees.
A subsidiary of Penske Corp. owns 64 percent of Penske Auto Centers; Kmart owns 36 percent.